Warehouse

Management
July 2015

Terminology

ABC
ABC
AIDC
AS/RS
CMI
CPFR
EDI
EPOS
ERP
FLT
JIT
OTIF
PPT
RFID
SAP
SKU
VMI
WMS

Activity based costing

Method of prioritising items
Automatic Identification and Data Collection
Automated storage and retrieval system
Co-managed inventory
Collaborative Planning, Forecasting and
Replenishment
Electronic Data Interchange
Electronic Point of Sale
Enterprise Resource Planning e.g. SAP, Oracle
Fork lift truck
Just in Time
On time in Full
Powered pallet truck
Radio Frequency Identification
A well-known ERP system
Stock keeping unit
Vendor Managed Inventory
Warehouse Management System
2

The Objectives of Warehousing

The primary objective of warehousing is to

maximize the effective use of the operational
resources while satisfying customer
requirements.

Match product availability to customer demand

Maximum customer satisfaction at Minimum cost

SIX BASIC PRINCIPLES

Accuracy,

Cost Control, Cleanliness, Efficiency

Safety and Security

Typical Warehouse Challenges (Adapted from Dematic)

Challenge

Operational Requirements

Cost reduction

Increase productivity, improve utilisation of space, staff and

equipment

Achieve the Perfect Order

Improve productivity, increase accuracy, improve handling and

invest in systems

Shorter order lead times

Improve processes and increase productivity

Sales via multiple channels and

increase in smaller orders

Improved picking strategies such as bulk picking and greater

use of technology

Fluctuations in demand

Flexible working hours and improved forecasting

Proliferation of SKU

Improved use of equipment such as carousels, A Frames and

flow racks

Labour cost and availability

Staff retention through excellent working conditions, flexible

hours, training and improved productivity

Increasing cost of energy and

environmental challenges

Manage energy more efficiently, better use of waste

Data accuracy and speed of

transfer

Introduce Warehouse management system and real time data

transfer

Role of the warehouse manager

To facilitate getting the product to the

customer:

On time (OT)
In Full (IF)
To the right place
In the right condition
With the right paperwork
At the right cost
As environmentally friendly as possible

Warehouses in the supply chain

Raw materials

Disposal

Component manufacture

Re-process

D
i
r
e
c
t

Product assembly /manufacture

R
e
t
u
r
n
s

c
e
n
t
r
e
s

Wholesalers/Dealerships

Retailers

s
a
l
e
s

Consumers

- Warehouse requirement
6

How many warehouses?

MANY WAREHOUSES
Inbound transport is
expensive (to supply
warehouses)
Outbound transport is
cheaper (to deliver to
customers)
Quicker reaction
Cost of maintaining many
warehouses is expensive
Cost of keeping many
buffer stocks is expensive

How many warehouses?

FEW WAREHOUSES
Inbound transport is
cheaper
Outbound transport is
more expensive
Less cost to maintain
warehouses
Less cost of buffer
stock

Warehouse location criteria

Best location selection criteria for warehouse location

Cost

Macro environment

Land cost
Labour costs
Transportation cost
Tax incentives
Tax structures
Financial incentives
Handling costs

Government
policies
Industry regulations
Enterprise Zones
and construction
plans

Location
Location 1
1Location

Labour
characteristics

Labour availability
Skilled labour
Transport links for
staff

Location 2

Infrastructure

Existence of modes
of transport
Telecommunication
systems
Energy and water
utilities
Quality and
reliability of modes
of transport
Proximity to ports
and airports
Existing sites

Environment

Markets

Geography
Weather

Proximity to
customers
Proximity to
supplier/producer
Lead times and
responsiveness

Location 3

Adapted from T. Demirel et al./Expert Systems with Applications 37 (2010) 39433952

Location 4

A Balancing Act

Business
Profit

Cost to
Serve

Perfect service =
High cost

Customer
Satisfaction

Service
quality

Low cost = Lower service

Evans & Castek in Gattorna (1998)

10

Different functions of a warehouse

Inventory holding point

Stock is held to fulfil orders / demand.

Storage of Customs and excise goods under bond

Sequencing centre

Just in time related techniques

Consolidation centre

Product lines from various locations are

consolidated into complete customer orders.

Cross-dock centre

Goods are received and shipped onwards without

storage.

Sortation centre

Goods are sorted by customer or region.

Assembly facility

Final assembly of goods prior to

distribution e.g. postponement or labelling.

Trans-shipment point

Goods are sorted into smaller vehicle loads for

delivery to the customer break-bulk centre.

Fulfilment centre

e-commerce and catalogue sales

Maintenance Stores

Spare parts to support operations in the field

Returned goods centre

To handle returned / faulty goods.

29

Benefits and barriers to outsourcing

Benefits to outsourcing

Expertise
Cost reduction
Flexibility
Capital investment reduction
Service level increase
Management time reduction
Concentrate on core competence
Cost control and visibility
Shared user opportunity
Innovation & best practice
Resource availability
Risk reduction

Barriers to outsourcing

Peace of mind, more professional

& fewer emotions. To stop
complacency within the business

Cost
Loss of Control
Lack of knowledge & understanding of
business
Internal unease
Service quality
Lack of trust and confidence
Lack of mutual, win/win approach
Risk and security of information
Management quality
Culture
Loss of internal expertise
Time to set up and manage the contracts

Hidden charges and profit determines

3PL decisions

Lean Warehousing

Cerasis.com

Warehouse processes and flow

Reserve storage
and full pallet pick

Item
picking
Replenishment

Case picking

Replenishment

Direct movement
To pick faces

Sortation, Consolidation and packing

Direct put-away
to reserve stock

Receiving

Despatch
Cross-docking
Adapted from Schmidt & Follert 2011

14

Warehouse functions
Receiving
Put-away
Storage
Order picking
Packing

Loading
Stock counting
Value adding
services
Cranfield University

Other activities
15

ABC layout

C Zone
Slow movers
45% SKU,
5% volume
B Zone
Medium movers,
35% SKU,
15% of volume
A Zone
Fast movers,
20% SKU,
80% of volume

Despatch
16

Picking systems

Picking is paramount to any warehouse operation

It is the most labour intensive
It is fundamental to customer service
There are often extensive floor space requirements
There may be limited scope for automation

On average 65% of the warehouse operating expenses

can be attributed to the Picking function.
On average travel time accounts for up to 50% of the total picking
time (Petersen C.G. 2002).

17

The pick process and likely errors

Order process

Order errors

Travel
2
Pick

11
43
12

Pack

23
30

Check

12

15

Wrong item
picked
Misscounting

Paperwork
Error
correction

Quantity
misread
Item omitted

45

18

Picking methods

Pick by order

All lines are collected for a specific customer order

Pick by label

All lines are collected for a specific customer order and labels attached to each
item

Take several individual orders out at the same time

Pick by batches

Products collected for a large number of orders with the same product lines

Fewer runs but increased handling and sortation, mainly smaller orders

Pick by zones

Products are categorised into specific groups and picked from defined areas

Minimal handling, order sizes are typically high.

Cluster picking

Minimal handling, order sizes are typically high.

Reduced walking distance, increased sortation

Pick to belt

Pick by waves

Large batches of orders are collected for defined time periods

19

Inventory management - Stock turn

How often stock turns over in a warehouse

How to calculate:
Divide the total throughput of items by the average number
of items in stock
Or
Divide the total cost of sales by the total average cost of
goods stored at a particular time

Examples of stock turn

100-500: Japanese manufacturing company
30-100: Good European manufacturing or distribution
10-30: Typical European manufacturing
<10: Poor European manufacturing
<2: Maintenance stores

20

Logistics Cost factors

16%

38%
6%
Transport
Warehouse operation
Order processing
Administration
Cost of inventory holding

8%

32%
Holding cost includes loss, obsolescence, interest, insurance and depreciation
21

Warehouse costs
UK Chartered Institute of Logistics and Transport
Survey stated that between 24% and 35% of Logistics
costs relate to warehouse activity and can be between
2% and 5% of the cost of sales
EQUIPMENT 10 - 15%

LABOUR 48-60%

SPACE 25 - 42%

22

Warehouse Costs
A
Labour
Salary, Overtime, NHI, Pension, insurance, PPE, holiday pay, sick pay, training
Agency labour
B
Equipment
Fork lift truck lease or rental, depreciation and interest, maintenance, energy
Automated equipment depreciation and interest
Cleaning equipment, stretch-wrap machines
Scanners, voice units, pick to light systems depreciation and interest
Pallets and packaging material
C
Storage
Facility - lease, rent or depreciation and interest, rates, taxation, insurance, maintenance, landscaping,
cleaning, security, sprinkler depreciation and maintenance, alarms, pest control, waste disposal
Equipment Rack and shelving depreciation, maintenance, inspection
D
Utilities
Heat, air conditioning, lighting, water

E
Overheads
Management, supervision, administration, office equipment depreciation and interest, IT hardware and
software rental or depreciation and interest, maintenance, training, communication costs, legal and
professional, taxation and licences, travel expenses, insurance and claims, claim losses due to damages,
shortages, errors
Variable costs

23

Results of effective I.T. systems

Quality of
Information

Reduced Lead
Times

Reduced Errors

Minimise
Unproductive
Labour

Improved
Customer
Service

Improved
Space
Utilisation

Improved
Equipment
Utilisation

Reduced
Operating
Costs
Increased
Sales

Increased
profitability
Courtesy of Tompkins inc

24

Best-of-Breed WMS vs. Integrated Suite

software such as ERP or SCM
Typically, best-of-breed applications have deeper functionality than modules
within integrated suites. In this case, that means more picking configurations,
labour management features, built-in integrations with other technologies, and
other warehouse-specific features within best-of-breed applications than
WMS modules within supply chain management or Enterprise Resource
Planning (ERP) suites.
Alternatively, buyers may want to evaluate integrated suites if they want a
solution that can manage other aspects of the business (accounting, human
resources, manufacturing, customer management, etc.) in addition to the
warehouse. These vendors are also typically more stable, meaning buyers
wont have to worry about their provider going out of business or being
acquired by another vendor.

25

Advantages of Automated systems

Increased Space Utilisation

High bay narrow aisle systems (up to 30 metres high)
Random storage
Improved Control
Pallet tracking through enhanced warehouse management system
Labour and Energy Savings
No heat and light requirement
Minimum supervision required
Continuity
24 hour, 7 days per week operation
Product Security
High bay areas, Use of First in First out principles, less human intervention
Safety
Elimination of manual handling
Reduction in accidents
Can cope with hazardous/harsh environments
Integration
Coordination of product flows, avoiding bottle necks
Constant performance levels
Continuous review

26

Disadvantages of Automated systems

High investment costs

Building, equipment, Information technology
System failure, operations are entirely reliant on technology
High opportunity cost
Require standardised unit loads
Anomalies not accepted and need to be handled
separately
More quality control required
High cost of disposal of equipment
Lack of flexibility

27

Warehouse layout
Five fundamental process objectives
Warehouse designs should be based on throughput not storage

1.
i.
ii.
iii.
iv.

Look at forecasted growth over the next five years

Evaluate the number type and physical features of the products
Understand the potential changes in product profiles over the period
Evaluate type and variability of demand and order profiles

Emphasis is placed on eliminating time, space and movement

Material and information flow should be properly integrated to avoid
delays and uncertainty
All issues should be linked to wider business issues

2.
3.
4.
i.

Understand long term market strategy

Solutions should be aligned to customer requirements

5.
i.

Potential use of warehouse as postponement centre

Ballard 1994

Main types of storage systems

Block stacking
Wide aisle racking
Cantilever racking
Narrow aisle racking

Automated
Manual

Drive-through/ Drive-in racking

Sliding or Mobile racking
Double deep racking
Flow or Live racking
Mezzanine
Carousels

29

Good practice in Performance Monitoring

Accuracy of data
Validity / completeness
Targeting of correct audience
User ownership
Reactivity to changes in business activity
Timeliness
Ease of maintenance
Cost-effectiveness
Rushton, Croucher and Baker (2010)

30

What are SMART KPIs

Specific Clear and concise

Measurable - , Volume, time, units

Achievable Goals can be met with effort

Relevant Has to drive the business forward

Time-based Deadlines set and committed to

They also have to be aligned across departments

Resource Planning

Estimate inbound and outbound volumes

No.

of deliveries, lines per delivery, no. of orders, lines per

order, VAS

Calculate available resource

Calculate times to load/unload/putaway/replenish/pick
Balance warehouse throughputs between days
Maximise the utilisation of resources and avoid idle
time or additional costs through overtime
Shift, daily or weekly planning
32

Environmental Initiatives

Roof lights optimise natural daylight into the warehouse, minimise night time light
pollution and generate power for use in the building
Naturally heated air used for internal heating
Solar thermal hot water system pre heats water for use in the offices
Roof mounted photovoltaic panels supplement the buildings electrical power
supply
Under floor heating to warehouse
Energy efficient lighting in the offices linked to movement detectors
Air tightness
Utilisation of thermal mass within the offices providing heating and cooling savings
Natural ventilation within offices
Rainwater collection for re-use in offices
Low water use sanitary appliances, leak detection and enhanced water metering
Kinetic energy plates provision in the access road produce power when driven over
by vehicles entering or leaving the site

33

The future

An acknowledgement that reducing warehousing and storage

costs is essential
Automated stores and computerised systems make it possible to
better manage these facilities
Trade-offs between higher customer service levels, low inventory
and low operating costs need to be balanced
Changes in business practices through the implementation of
JIT, Lean, Kanban and Kaizen concepts
Better logistics systems, improved supply chain integration and
visibility
Time compression reducing time consumed in business
processes. Elimination of non-value-added time.
Shortage of good quality staff at all levels
Ageing population
Robotics
Increasing cost of fuel
Greater collaboration
The Green agenda

34

Will we actually need warehouses?

3D printing

Can we 3D print the warehouse?

The future as uncertain as its always been

09/07/2015

35